Capita

Lord Adonis Excerpts

Thursday 1st February 2018 Lords Chamber

[Lord Young of Cookham]

I am grateful to the noble Lord for his questions.

There are two levels of risk assessment. One is at the point at which a particular contract is let. A risk assessment that is obviously proportionate to that contract is made at that point, making sure, for example, that there are adequate cash reserves to see the contract through. Then, at a slightly broader level, one monitors continuously the broad health of the company concerned. On that point, there is a Crown representative in Capita and has been throughout the period in question.

In a moment, I will come on to the question of diversity of supply. On pensions, we do not believe that there is a risk to the pension funds that are administered by Capita. We think that that is perfectly safe. On Capita’s own pension scheme, its deficit in June 2017, I think, was £381 million. A triennial review is going on. The outcome is widely anticipated to be a lower deficit. Part of the announcement yesterday was on further resources being put into the pension fund.

The important issue that the noble Lord raises on trying to broaden the base of contractors that work for the Government is a priority. We have a target of allocating I think 30% of public sector contracts to SMEs. Work is ongoing. There is a good question as to whether work that is subcontracted by a major contractor to smaller contractors scores or whether the smaller contractor should be, as it were, the prime contractor. This work is ongoing, but we take the point. We want to see a greater proportion of work going to SMEs.

On SMEs, Capita’s record on prompt payment is quite good. Capita generally paid 70% to 90% of all subcontractors within 30 days. It has introduced a new payment system and aims to pay 100% of subcontractors within 30 days. I hope that that will be of some reassurance.

On the comparison with Carillion, I tried to make the point at the beginning that the steps that Capita announced yesterday were perhaps steps that Carillion should have announced earlier. They were designed to strengthen the balance sheet, reduce dividends and make sure that the fate that befell Carillion does not happen to Capita. Of course, Carillion was exposed to some major construction contracts. Capita’s business model is quite different. If I have not answered all the noble Lord’s questions I will drop him a line.

[Lord Adonis (Lab)]

My Lords, does the noble Lord think it appropriate that Capita is paying any dividends, given the huge stress that it is currently under? Will he tell your Lordships whether the Crown representative, who is currently on the board of Capita, has been continuously in post for the last 12 months?

[Lord Young of Cookham]

On the first question, I understand that dividends have been suspended. That was part of the announcement. That, together with the rights issue of some £700 million, will mean that there will be some additional £900 million available in cash to the company. I will write to the noble Lord. I have asked about the Crown representative. I was assured that one had been in place. I will drop him a line on the specific question of 12 months, but there has been, and indeed is, a Crown representative on the board.